Why Strategy Matters and How it Influences Culture

Does strategy matter?  

If you do not think that it matters then you are in good company.  There are many who question the value of strategy. And I see many companies where there is no formal strategy; the informal strategy is to keep doing what has worked in the past or to chase what is fashionable today.

Strategy v Execution

When it comes to questioning strategy there are two schools that are particularly prominent.  First, there is the school of execution. The execution school which says that strategy is waste of time. Why? Because strategies are generic-obvious and what matters is execution. The ability to turn strategy into the daily live of the organisation. Clearly, there is some truth in this school. Strategy which cannot be operationalised is waste of time-resource.

Strategy v Culture

Then there is the school that says “culture eats strategy for breakfast”.  Yes, culture is powerful. Culture determines what gets done and how it gets done.  A strategy that does not take into account the fit with culture will meet lots of resistance.  Getting people to enact such a strategy will be like fighting a guerilla war with an enemy who is patient and cunning.  What is forgotten is that culture can be and is influenced-shaped-shifted through strategy.

To see strategy and culture as being separate and distinct is a gross misunderstanding.  This misunderstanding arises due to our reductionist-analytical thinking.  Strategy and culture are interlinked. Put differently, if you change strategy, you will take actions that will influence the culture. And if you change culture it will eventually influence the strategy.

HBOS: strategy shapes culture and leads to downfall?

If you still have doubts over the importance/significance of strategy then I say let’s consider the case of HBOS bank and the latest report on how this bank was brought to its knees.  The HBOS bank was rescued, after significant arm twisting and sweeteners by the UK Govt, in 2008 by Lloyds bank. Why did a bank that was valued at £30bn when it was created in 2001 need to be rescued?  Because it racked up £47bn of losses on bad loans.

Who were the architects of the HBOS downfall? 

Three Tops have been singled out in the report published by the parliamentary commission:

The primary responsibility for the downfall of HBOS should rest with the Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank’s board from it’s birth to its death.

How was strategy responsible for the downfall of HBOS?

Here is what the parliamentary report says:

The strategy set by the Board from the creation of the new Group sowed the seeds of its destruction. HBOS set a strategy for aggressive, asset-led growth across divisions over a sustained period. This involved accepting more risk across all divisions of the Group. Although many of the strengths of the two brands within HBOS largely persisted at branch level, the strategy created a new culture in the higher echelons of the bank. This culture was brash, underpinned by a belief that the growing market share was due to a special set of skills which HBOS possessed and which its competitors lacked. The effects of the culture were all the more corrosive when coupled with a lack of corporate self-knowledge at the top of the organisation, enabling the bank’s leaders to persist in the belief, in some cases to this day, that HBOS was a conservative institution when in fact it was the very opposite. :

The growth of HBOS’s Corporate Division was not the result of superior performance but of its high-risk strategy. The nature of its activities did not alter after the creation of HBOS, although the pace of growth accelerated and the scale significantly increased. When the Division later incurred huge losses, these too were due to the particular nature of its business and resulted directly from its high-risk strategy. Its losses were on a larger proportionate scale than those incurred by any other major UK bank. This was caused specifically by its distinctive loan book, including concentration in commercial real estate and leveraged loans, high exposure to single names, a high proportion of non-investment grade or unrated credit and holdings of equity and junior debt instruments. The loan book was therefore significantly more exposed to the domestic downturn than that of any other large UK corporate banking businesses.

The acceleration in loan growth, in part caused by the Division’s neglect of the storm signals of 2007 and 2008, is likely to have exacerbated the scale of the subsequent losses. However, even without this acceleration, the Division would still have incurred disastrous losses. The roots of all these mistakes can be traced to a culture of perilously high risk lending. The picture that emerges is of a corporate bank that found it hard to say ‘no’.

In view of the reckless lending policies pursued by HBOS Corporate Division, we are extremely disappointed by the attempts of the most senior leaders of HBOS at the time to attribute the scale of the consequent losses principally, or in significant measure, to the temporary closure of wholesale markets. The lending approach of the Corporate Division would have been bad lending in any market. The crisis in financial markets was merely the catalyst to expose it. Losses in the Corporate Division did not prove temporary. Indeed, we estimate that the HBOS Corporate loan book has continued to incur significant impairments in every year since 2008, demonstrating that the losses were the result of incompetent lending and not caused solely by the events of 2008. Furthermore, HBOS’s Corporate Division was significantly more exposed than other banks to the downturn in the economy due to the nature of its loan book.

How does digital impact strategy, marketing, and the customer experience?

I say digital fundamentally disrupts everything: value propositions, communications, the customer experience

“What do you think of digital?” That was the question that the interviewer at the Technology for Marketing & Advertising conference asked me. The bulk of my customer experience work for the last two years has centred on/around digital. So here is the answer I gave:

Digital is disruptive. It disrupts the value proposition, communications with and between customers, the customer experience, and the business model  I say every business has to get to grips with digital and the transformation it engenders in these four areas. Failing to do so is a one way ride to oblivion especially for retail businesses.

I went on to say:

The days of putting a warehouse with a glass front and minimum wage employees, who are generally clueless, on a high street, are fast running out.  Why?  Because if it can be bought digitally then it will be bought digitally. You cannot beat digital for research, for price comparisons, for ease, for convenience and even for instant access to the product/service – for some categories of goods and services. And if you get your logistics right then many customers can wait a day or two to get what they ordered online.

Which means that If your value proposition and the associated customer experience is not good enough to charge an entrance fee then you should close up shop. Why? Because you will simply end up being a showroom for a digital master like Amazon.

Michael Schrage says “Invest in your customers more than you brand”

It isn’t often that I come across a piece that speaks to me the way that Michael Schrage’s piece speaks to me.  I say that if you are in the game of business, the game of customer-centricity, or the game of customer experience then read and memorise that which he says.  For my part, I want to pull out his wisdom as it relates to the impact of digital on business strategy, marketing, sales, service and the customer experience.

Digital technologies push firms to recognize, rethink and reorganise how they should make their customers smarter and more confident…How are you using digital media to help your best customers and prospects to better educate themselves?  How are you making them smarter and more capable? Companies like Amazon, Google, Apple, IKEA and IBM have answers to that question. What’s yours?

The distinctions that make a difference will be value-added aducation and advice.  After decades of complaints about the poor quality of its instructions and documentation, for example, Ikea set up a YouTube channel…showing people how to easily put together its most complex furniture.

The advice/aducation marketing challenge comes from redefining advertising as an investment that makes your customers more valuable to you, not just an investment that makes your brand more valuable to your customers…

The digital and digitizing future belongs to the best aducators and advisors who make clients, customers, prospects measurably smarter and authentically more confident.  That a challenge a David Ogilvy, Jay Chiat and Rosser Reeves would appreciate.

Credibility comes from commitment to facilitate decision, not calculate persuasion. “We [Amazon] make money when we help customers make purchase decisions.”

Bezos’ bet is that relevant recommendations and reviews – good advice – are better brand investments than digital sales pitchesClose the deal by being openly helpful and helpfully open, not by “selling better.” Amazon transformed customer behaviours and expectations by consistently favouring innovative “advice” over sales-oriented “advertising” and promotion.

Sales don’t drive the UX; they’re it’s happy byproducts. That digital design sensibility has yet to seep into marketing’s mainstream…..

And finally

If you are busy firmly planted in the call-centre working on improving the ‘customer experience’ then I say get that you are at best improving customer service. Not the customer experience. You are mired in operations and as such you may just be missing out on the bigger picture – the opportunity and the challenge.

If like me, you are fundamentally a strategist and you passion lies in value propositions and customer experience innovation,  I say get passionate about digital. Learn digital. Use digital. Why?  Because digital enables transformations in the value proposition, communications with and between customers, the customer experience, and the business model.

Why price matters and how it is tied up with marketing, service and customer experience

In a recent post, I wrote:

“Bob Thompson shared the results of research he had been involved in some years ago.  When customers were asked what constituted ‘customer-centricity’ they came up with:  product quality/fitness for purpose; customer service excellence; being treated fairly; and price.  Bob made a big play, as do others, about price only being fourth on the list.  I will be writing a post on the price myth soon.”

Can you count on customers to tell the ‘truth’?

Before we can grapple with the ‘price is not that important, other stuff is more importantmyth we have to grapple with the customer/market research myth.   Why?  Because the people who make customer related claims – including on the matter of price – almost always refer to the results of customer surveys and market research.

Research simply discloses how a specific bunch of people responded to/answered a set of questions given the way that these questions were worded/framed and how/when the research was conducted.  ‘That is it – that is all it tells you!  You cannot use it to make declarative statements of ‘truth’ about what matters to customers nor what they actually do when they are shopping in the real life shopping environment. Even if we assume that all bias has been stripped out of the surveying/research process we are confronted with this:  people deceive themselves whilst being convinced that they are espousing the truth – neuroscience suggest that this is a fundamental feature due to the design of the brain, which is really many brains in one.

Asking about price, and how much it matters or not, is like asking about sex.  Why?  Because the question is laden with meaning which puts one’s identity, self-esteem and ‘social face’ at stake.  If you are a woman and answer that you have had many partners and love sex then you are likely to be thought of as being ‘loose’ and looked down upon.  And you, the woman that is being asked that question know that and so you modulate your answer – you lie.  Now imagine that you are a man.  How likely are you to say that you have had no sex at all in the last three months?  I recently took part in a speed awareness course where only 2 people out of 23 claimed not to be ‘better than the average driver’  Was it because most of us in that room (including me) are deluded or is it some of us were not willing to admit that we are not good drivers in front of our fellows?  Possibly and most likely both.

First the price question will be answered differently by different segments and you cannot average it out – to some people it might matter a lot, to others not at all. Second, there will be a ‘right’ answer (socially desirable) given the current circumstances – have you noticed how thrift is in and conspicuous spending out?  Third, what people say (and even think they do and what matters to them) is often very different to what is so.  And even when you educate them on what is so they tend to ignore it – they were blind to it for a very good reason.

In short,the scientifically correct thing to do is to be skeptical about what people say: you simply cannot count on human beings to have accurate insights into themselves or their behaviour.  And you cannot count on them to tell the ‘truth’ as it shows up for them if their ‘social identity’ is at stake.

What is our relationship to price?

Take a look at what is happening on the high street. We go and try out products and get advice in stores and then go home and buy it online because we can get the same product cheaper.  Is this why so many stores have closed in the UK and why high streets are littered with empty or boarded up shops?  Remember Gateway?  The  online PC seller who opened stores and designed/delivered a great shopping experience?  It ended up closing the stores.  Why?  Consumers tuned up at the stores got great advice and then they went home and bought online from Dell because Dell was cheaper.  What was the fear with the internet?  Ease of finding/comparing prices.  Why?  Because it would enable buyers to buy from the cheapest seller.  Why do offline retailers fear smartphones?  Because they enable shoppers to compare prices and either buy it online (cheaper) or head for a store down the street that supplies the same product at a cheaper price.

Look at Ryanair and Easyjet – these low cost airlines exist because they have come up with a low price value proposition for air travel that speaks to people whose first and foremost requirement is price – cheap.   Look at IKEA – it had done the same for furniture.  Then there is WalMart in the USA and Matalan in the UK – doing very well by selling merchandise at value prices.  In short these players are doing well because they are playing the price card well.

Price can also be an indicator or quality and thus assuage our concerns about being swindled/making the wrong choice.  For example, experiments show that if you have a high end product and a low end product then you can do better by introducing a ‘in between product’ in terms of price.  When you do that what happens?  You make more money because you help people to buy.  Most people will buy the ‘in between’ priced product – these people fear buying the ‘cheap’ products (quality concerns) and are not up for buying the top priced product.  Note: it is essential that the shoppers is uncertain about the quality of the products for this behaviour to show up.

What is my point of view on Price?

I say that price does matter especially in the current economic climate.   We are all sensitive to price – our sensitivity depends on our sense of our financial well being.  It depends on current savings, current income and how we see the future. If our income/savings are low then we will be price sensitive.  Last summer I spent some time in the New Forest and in particular in a locale where only the rich can afford to live – property price are high.  Yet, I was shocked to see busy ‘cheap stores’ nestled in amongst the expensive stores. Then I got that there are plenty of old folks who have retire in this locale.  They have used their savings to buy their homes and their incomes are limited and so they use the ‘cheap’ stores.  Finally, the future matters, if the future looks bleak then we are more price sensitive than if the future looks bright.

I say that we will not willingly pay more than we have to for the same product if all things are equal.  A great example of this is insurance – most people buy on price as they assume that all companies, all policies are alike.   Only those that have made a claim, become wise to and factor in what the policy covers and the claims experience.  That means that if store A wants to charge us more than Store B  for an identical product then the people at store A have to invent differences and communicate these differences so that the customer can justify paying the higher price.

The central challenge of business continues to be inventing differences – real and imagined – so as to get the customer to pay a higher price than s/he would otherwise pay.  The factors that companies have to play with are: product and product development; marketing and the art/science of impression/perception management (notice the interest in neuroscience and neuromarketing); service (not the function called Customer Services) and in its broadest/modern sense Customer Experience; and business model design – what you charge for, how you charge….  Apple does it through great products.  Zappos does it through great service. Amazon does it through the ease of the purchasing process.  USAA does it through the ‘community’ and ‘integrity’ and ‘service’.  Zane’s Cycles does it through the customer experience and ‘community’………

Put differently, the justification for investments in marketing, in service, in the customer experience are based on counteracting the buyers propensity to buy on price if all things are equal.  That means that the purpose of marketing, service, customer experience is to ensure that all things are not equal in the minds of buyers.  Manipulating perceptions – the role of marketing – used to be enough because only marketer had access to media. Media exists to shape minds – always.  Marketing no longer works that well due to the democratisation of voice. Which is why there is pressure to actually be different: stand out products; stand out service; stand out customer experience. This requires a fundamental change in organisational behaviour: investments have to move from marketing (impression management) to the product and/or the operations that enable buyers to buy, own and use the product.  Few organisations have made that shift in priorities and spending.  Which is why so much customer talk is simply empty talk.  Now compare that with the companies that stand out in terms of product-service-customer experience: do you notice that they don’t spend anywhere near as much on marketing as their competitors?

What is the good news?  Whilst price matters it is not the only thing matters.  Our dignity matters to us – we are selves who are aware of ourselves and who are driven to relate to ourselves as worthy/important/as mattering.  And this need is as important as the need for a ‘good deal’.  As such this provides an opening for organisations who honour our need for validation, for dignity, for wanting to feel there are good guys out there and that we live in a ‘good’ world.  Which is why companies like Zappos and Zane’s Cycles are doing well – they charge premium prices in turn for honouring us ‘as the best of ourselves’ .  And enough of us are willing to pay the premium price and talk about these companies as if they are our friends.  Because they show up for as being our friends.  Amongst friends, price is not the most important thing, it is trust, it is looking after one another, it is acting equitably/fairly.  It is giving a helping hand now, in the full knowledge that our friend will be there when we need that hand in return.  As and when that expectation is violated by our friend/s then we speak out – think Netflix.


Customer-Centricity: what does it take to make the transition to a customer-centric business?

What is our defining feature, our magnificence?

We are awesome.  We, individually as an organism and collectively as a species, are best signified as “that whose defining characteristic is the capacity to imagine possibilities and convert these possibilities to reality‘.  Yes, we are an organism that excels in listening to and telling Story.  Yes, we are an automatic meaning making machine.  And for me the distinguishing feature, the crowning glory, the magnificence of us is our ability / our deftness at converting a vision, a dream, a possibility in our mind into what is so in the world.

Allow me to give you specific examples of what I am talking about.  Think about the American Declaration of Independence and what resulted when this is put into the world.   Would there be a USA without this declaration?  Think about Martin Luther King’s “I have a dream” speech, vision, declaration, stand.  Think about Gandhi and his declaration that India will be free. Think about JFK’s “Man on the Moon” bold vision, challenge and address to congress.

Why doesn’t the ‘world work’?

Why doesn’t the ‘world work’ such that no-one is excluded?  Is that too abstract, too philosophical?  OK, let me make it simpler by asking the question:  why is it so that many of our fellow human beings live in hunger and die of hunger?  Do we lack the know how? No.  Do we lack the capacity, the resources, to feed our hungry fellow human beings?  No.  So why are our fellow human beings dying?  Look into this and you might come to the conclusion, that whilst many of us are inspired at the thought of a world in which every one of us has enough to eat (none of us starve), one or both of the following is present:

  • We simply cannot conceive of possibility of an Earth where all of us are well fed – this simply occurs as ridiculous to us; and/or
  • It is OK by us for our fellow human beings to starve as long as we do not have to ‘see’ it, face it, experience it.

I take no credit for this insight.  It rightly belong to an unacknowledged American genius (now living in exile) called Werner Erhard.  He got and articulated this position over 30+ years ago.  You might be wondering what this has to do with organisations and customer-centricity in particular.  Let’s deal with that – the foundation is in place to have that conversation.

Why is it that only a handful of big businesses have made the transition to being customer-centric?

What are the obstacles to making the transition to customer-centricity?  Is it lack of know how?  Is it the lack of capacity / resources?  Before you come to a conclusion, consider the following:

  • A ‘handful’ of poorly armed, poorly trained (militarily), yet powerfully motivated colonists defeated the military might and political power of the worlds’ greatest empire (the British empire);
  • A man (Gandhi) in a loincloth took on the world greatest empire and after many years of sacrifice / struggle he won, the empire capitulated;
  • One man’s speech (“I have a dream”) dramatically changed the social landscape of many millions of Americans despite the entrenched legacy of slavery;
  • One man (JFK) rallied a nation and put a man on the moon.

I assert that only a handful of companies have made the transition to being customer-centric because of one or both of the following:

  • Tops do not believe that if they look after their customers, their customers, will in return, look after them; and/or
  • It is perfectly OK for the business to continue as is (product/sales centric) because the business is doing just fine as it is.

Lets listen to what the CEO of O2 shares about their transition to customer-centricity

One of the few big companies, that I know of in the UK, that has made that transition is O2 (telco).  So it might just be worth taking a look at Ronan Dunne, the CEO, says:

Our philosophy was: create an enduring relationship.  How do you do that? You build trust. You take away the scams, the small print that people think is unfair.  You make your tariffing more transparent and simpler so that all the weasel is gone, so what you see is what you get…..To build a trust relationship with your customers you have to be really clear in your communication.  You have to be bold to change the rules of the game. You have to take risks.

By introducing Simplicity and Fair Deal, we were essentially writing a £500 million cheque against our P&L.

The thing that got us through those early days was…we had a very tough and open and honest debate as a board.  We finished the conversation by saying we may not be able to fully analyse this as a business case on a few PowerPoint slides, but we all believe that it is the right thing to do……

We looked each other in the eye as a team – finance, marketing, sales, the operation side – and said, ‘Do we, or do we not, believe this?‘  And as a team we absolutely signed up.  As a result every tough conversation we had subsequently was in the context of ‘If we believe doing the right thing for the customers is ultimately the most profitable business model, have we solved this particular issue?’ 

If each time we had a problem we had argued about it without the benefit of that context then it would have all fallen apart.  That basic premise of the long term sustainable profitability of the business being underpinned by creating a differentiating customer experience was the rock on which we built the brand.”

I draw your attention to the following

The O2 Tops created the possibility of being customer-centric AND believed that this was the right thing to do.  Why?  Because there was no statistical evidence, in the real world, that this was the right thing to do.  The outcome of their actions was uncertain, undetermined – that is the only time we need beliefs, else beliefs are superfluous.

The access to starting the customer-centric journey was boldness, the willingness to take risks. The O2 Board (the Tops) took a risk – a potential hit of £500m against their P&L.

The entire O2 Board discussed the matter at hand and each Board member signed up voluntarily.

Keeping the context (‘If we believe doing the right thing for customers is ultimately the most profitable business model…’) alive allowed the O2 Tops to make the difficult decisions without rupturing their relational bonds (without destroying their working relationship with one another)

And finally

The source of the material on O2 is the book BOLD by Shaun Smith and Andy Milligan.

Everything I have learned about business, customer-centricity, customer experience and life

Whenever I struggled with a Physics problem my professor (a wise man) instructed me to go back to the fundamentals: the fundamental principles of Physics.  This post is written in that spirit.

A little about the value and limits of frameworks

So you want to lead your organisation to competitive success.  Great.  Without a framework – a point of view that you CREATE and IMPOSE on the messiness of reality – how are you going to get there?

Here is the framework that I use based on everything I have learned about business and customer-centricty – looking through the lens of the strategist rather than an expert in operational effectiveness/efficiency.  Before you read what I write, I am compelled to point out that everything that I share with you is NOT the truth.  It can NEVER be the TRUTH.  Why?  When you dive into it, really dive into depths, you will see for yourself that ultimately life is a mystery.

Frameworks are simply models.  Models are not an accurate depiction/representation of reality (what is so).  Models are useful because they simplify reality and thus allow us to act on it.  Frameworks are filters – they filter out that which is unnecessary.  The issue is that we can never know what is unnecessary.  The hidden manifests that which is visible.  If that is too esoteric, too zen for you then think about the fundamental finding of chaos theory: a infinitesimal change somewhere in the system (far far away in space-time) can have catastrophic impact over here now.  The popular version for this is the “butterfly flapping its wings in South America yesterday can change the weather over here in the USA/Europe today”. OK, with the context set let me share with you that which I promised to share with you.

This is everything that I have learned about business, customer-centricity and customer experience – as a strategist

–  He who does the best job of creating AND communicating the most value for the customer (through the customer’s eyes) wins;

–  A distinctive Value Proposition (that speaks to the target market) is at the heart of creating value for the customer – notice I used the term DISTINCTIVE, not better and not simply different;

–  That distinctive Value Proposition allows you to offer and get away with a ‘not so great customer experience’.  Yes it does!  Think about IKEA.  Think about Ryanair/Easyjet.  Think about early adopters of any new technology who put up with all kinds of ‘hassle’ simply to access and benefit from the Value Proposition.

–  If you do NOT have a distinctive Value Proposition you can focus on excelling at the Customer Experience and that excellence can become your Value Proposition.

–  Even if you have a distinctive Value Proposition you must continually improve the Customer Experience such that it AMPLIFIES your Value Proposition.

–  A distinctive Value Proposition and the appropriate Customer Experience – both pinned by the Value Chain and a continuous improvement culture – will allow you to dominate your industry and make bumper profits.

To create and deliver that Value Proposition and the associated Customer Experience you have to get your hands dirty designing, monitoring, changing, tuning the Value Chain – what you do not do (e.g. Zappos does not outsource Customer Service) matters as much as what you do. 

Create a context where you and your people are open to generating and using insights (wherever they arise) to improve your Value Chain, the Customer Experience – think twice before you make any significant change to the Value Proposition. 

Communication (listening, talking, discussing, imagining, sharing, debating) matters profoundly so communicate, communicate, communicate – if a tree falls down in the forest and there is no-one to record and share that falling then that tree did not fall, in fact it never existed!

One day a butterfly will flap its wings, change the ‘environment and the rules of the game’ rendering your Value Proposition irrelevant.  When that happens your customer-centricity, your Customer Experience – no matter how great – will not save you.   If you are ‘lucky’ you may end up reinventing yourself – like Apple, like IBM, like Starbucks did.  The more likely scenario is that you will die a slow death like Kodak.  No need to despair, the game goes on, just the player/s at the centre of the stage change.  Comfort yourself, know that we are all like guests in hotel rooms – temporary occupants in the game of business and life, the game goes on with and without us.  Ultimately it is all about the game itself – we come on the stage, play our part and then leave.  That applies to all of us – no exceptions.  That is our shared humanity.

Final Words

I thank you for listening, it is your listening that makes my speaking possible.  I wish you the very best in the game of business and in the game of life.  It’s just a game – don’t take yourself so damn seriously AND play the game full out.  Do not be like the old lady who died ‘clutching’ a note that read:

Never fulfilled my potential

NEVER fulfilled my potential

Make your life count, make your role count, make your team count, make your organisation count.  Make an awesome contribution – at least play the game of making an awesome contribution full out.  It is when you are standing in the clearing called ‘up for / committed to making an awesome contribution’ that you are most likely to come up with the Value Proposition (that makes a contribution to the lives of our fellow human beings) and the associated organisation that creates and delivers that Value Proposition.